Click to enlarge — @morganhousel
Thanks to my favorite Recovering Republican
❝ On Monday, I cast doubt on the many stories about how Black Friday retail sales were off to a disappointing start. This is an important story because retail is such a critical part of the U.S. economy, and because such a large share of the industry’s sales occur during the roughly five weeks between Thanksgiving and Christmas. But the more important point — at least for my purposes — is that the initial reports, thanks to the National Retail Federation, are a case study in how to obtain meaningless data and then put it to bad use.
❝ The NRF reported a 3.5 percent drop in spending. “Average spending per person over Thanksgiving weekend totaled $289.19, down slightly from $299.60 last year,” the organization said in a statement. This information was based on asking consumers how much they figured they would spend this year versus a year ago…
A lousy guess turns out to be wrong. Q’uelle surprise!
❝ I make a big deal about the retail trade group’s record of inaccuracy every year for a few reasons: it is important for investors — and indeed, citizens — to be grounded in reality. Most human progress is the result of the work of scientists, technologists and logicians who rely on facts and testable theories…
❝ This is crucial because retail sales are such a big deal. Almost 16 million people work in retail, or about 10.9 percent of the U.S. labor force. It accounts for a huge percentage of the overall economy. Retail sales provide a window into consumer sentiment, as well as corporate revenue, profits and investment decisions. By some measures, consumer spending counts for almost two-thirds of gross domestic product.
❝ …It is of course way too early to have the final retail sales data, but we do have some early numbers based on actual sales. First Data Corp., a point-of-sales transaction processor, says that it examined data from almost 1 million merchants and concluded that sales so far this holiday shopping season are up 9 percent from a year earlier. Furthermore, perhaps in a sign of the state of the industry’s health, sales of electronics and appliances rose 26.5 percent, compared with a lackluster 2.3 percent gain last year. First Data also found that the average transaction grew by more than $41 year over year.
❝ First Data noted that its analytical methodology “is based on actual consumer transactions rather than surveys or speculation.” The company has access to this information because it processes actual credit-card and debit-card transactions.
RTFA. We’re in an extended season of mediocre surveying, surprising results, poor planning afflicting anyone making decisions based on “truthiness”.
Barry is speaking to investors; but, his point of view on hard data needs to be taken to heart across the spectra from politics to Giftmas shopping.
Thanks, Barry Ritholtz
Completed in 1974, Monroe Power Plant will be the last one standing in 2030
❝ All year, Donald Trump has been promising to rescue the US coal industry by repealing various Obama-era pollution rules and ending the “war on coal.” And all year, analysts have pointed out that he probably can’t stop the collapse of the coal industry — since coal’s woes go far beyond the Environmental Protection Agency.
But if you want a perfect example of why Trump will struggle to bring back coal, just look at Michigan.
❝ Last weekend, the CEO of Michigan’s largest electric utility reiterated that his company is still planning to retire eight of its nine remaining coal plants by 2030 — whether or not Trump tries to repeal President Obama’s climate policies…
Gerry Anderson’s reasoning was simple. Coal is no longer the economic choice for generating electricity, due to relentless competition from cheaper (and cleaner) natural gas and wind power. In Michigan, a new coal plant costs $133 per megawatt hour. A natural gas plant costs half that. Even wind contracts now cost about $74.52 per megawatt hour, after federal tax credits. “I don’t know anybody in the country who would build another coal plant,” Anderson said.
❝ What’s more, Anderson added, surveys show that most of Michigan’s consumers want to add more renewables “if it can be done at reasonable cost.”
❝ It’s not just Michigan. This dynamic is playing out all over the country, as coal plant after coal plant succumbs to competition from cheap natural gas and wind. Over at Politico, Michael Grunwald estimates that US power plants are now on track to emit 27 percent less carbon dioxide in 2016 than they did in 2005.
What’s remarkable is that this is all happening before Obama’s Clean Power Plan even takes effect. That rule, which is still tied up in court, aimed for a 30 percent cut below 2005 levels by 2030. We’re almost there already. So it’s clear that scrapping the CPP, as Trump has pledged, won’t help coal power make a huge comeback.
Not that reason, efficiency and cost mean much to Republicans and other Trump Chumps. The vicarious thrill of turning back regulations designed to make life healthier for most folks is almost as visceral a pleasure as, say, machine-gunning a basket of kittens.
❝ Hundreds of thousands of South Korean protesters marched to President Park Geun-hye’s office, beating drums and chanting slogans, even as lawmakers considered impeaching her over an influence-peddling scandal.
I’ve been in crowds of hundreds of thousands, a million. At times, been one of the political geeks analyzing photos to calculate real turnout instead of relying on crap police estimates. There is nothing new after all about governments inflating numbers of terrorists killed and rolling out imaginary reductions in public opposition.
Point remains – it takes a while for serious anger to grow in a population that is learning they were pawns in a game of greed and profit, same as it ever was, lied to and misled by a populist pimp.
❝ In the modern era of presidential politics, no candidate has ever won the popular vote by more than Hillary Clinton did this year, yet still managed to lose the electoral college. In that sense, 2016 was a historic split: Donald Trump won the presidency by as much as 74 electoral votes (depending on how Michigan ends up) while losing the nationwide vote to Clinton by 2 million votes and counting.
❝ But there’s another divide exposed by the election, which researchers at the Brookings Institution recently discovered as they sifted the election returns. It has no bearing on the election outcome, but it tells us something important about the state of the country and its politics moving forward.
The divide is economic, and it is massive. According to the Brookings analysis, the less-than-500 counties that Clinton won nationwide combined to generate 64 percent of America’s economic activity in 2015. The more-than-2,600 counties that Trump won combined to generate 36 percent of the country’s economic activity last year.
Clinton, in other words, carried nearly two-thirds of the American economy…
❝ This appears to be unprecedented, in the era of modern economic statistics, for a losing presidential candidate. The last candidate to win the popular vote but lose the electoral college, Democrat Al Gore in 2000, won counties that generated about 54 percent of the country’s gross domestic product, the Brookings researchers calculated. That’s true even though Gore won more than 100 more counties in 2000 than Clinton did in 2016.
In between those elections, U.S. economic activity has grown increasingly concentrated in large, “superstar” metro areas, such as Silicon Valley and New York.
But it’s not the case that the counties Clinton won have grown richer at the expense of the rest of the country — they represent about the same share of the economy today as they did in 2000. Instead, it appears that, compared to Gore, Clinton was much more successful in winning over the most successful counties in a geographically unbalanced economy…
❝ “This is a picture of a very polarized and increasingly concentrated economy,” said Mark Muro, the policy director at the Brookings metro program, “with the Democratic base aligning more to that more concentrated modern economy, but a lot of votes and anger to be had in the rest of the country.”
RTFA for details, methods of research. My first response in terms of political economy is that Trump voters have been represented for decades by conservatives – Republicans or Democrats – who don’t care a rat’s ass about the human condition in their districts. They’re fixated on the same old rusty dusty economics that conservatives have blathered about forever in the GOUSA. Balanced budgets are more important than schools, doing things the way grandpa did is more important than leading the way to a new economy.
Humbug for losers – who behave just as they believe they should. Obedient, accept lies and deceit as gospel truth. Ignore hard data.
❝ Trumpists are touting the idea of a big infrastructure build, and some Democrats are making conciliatory noises about working with the new regime on that front. But remember who you’re dealing with: if you invest anything with this guy, be it money or reputation, you are at great risk of being scammed. So, what do we know about the Trump infrastructure plan, such as it is?
❝ Crucially, it’s not a plan to borrow $1 trillion and spend it on much-needed projects — which would be the straightforward, obvious thing to do. It is, instead, supposed to involve having private investors do the work both of raising money and building the projects — with the aid of a huge tax credit that gives them back 82 percent of the equity they put in. To compensate for the small sliver of additional equity and the interest on their borrowing, the private investors then have to somehow make profits on the assets they end up owning.
You should immediately ask three questions about all of this.
❝ First, why involve private investors at all? It’s not as if the federal government is having any trouble raising money…
❝ Second, how is this kind of scheme supposed to finance investment that doesn’t produce a revenue stream?…
❝ Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? That is, how much “additionality” is there?…
❝ …All of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff. You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers. Is that implausible, given who we’re talking about?
Paul Krugman has it wired. Trump chumps thought they were one up on the system voting in someone they knew was a crook and a liar. They were silly enough to believe he was “their” crook and liar. They missed the lecture on Capitalism 101 which states the greedy bastards in charge aren’t interested in sharing the wealth – except with co-conspirators.
That doesn’t include you.
❝ Now that the election is over, expect the GOP to start seeing how fantastic the economy has become; to a somewhat lesser extent (no false equivalency here), the Democrats will start seeing more of its weaknesses…
❝ As Rebecca Sinderbrand, Deputy national political editor at the Washington Post noted on November 15: “that must’ve been some weekend.”
This graph and brief commentary was added by Barry Ritholtz to the larger piece he blogged – about the Dangers of a Fact-Free America.
Worth reflecting upon as thoroughly as the tag I posted here.
Sure has been a while…
❝ There are times when a confluence of events creates a rare opportunity. The U.S. now is at one of those moments…
❝ Campaign promises were made by the president-elect to upgrade infrastructure;
The U.S. federal debt is almost $20 trillion;
The U.S. has both a high credit rating and a stable, growing economy;
There is a worldwide shortage of sovereign, A-rated bonds;
Negative interest rates are prevalent around the world;
The U.S.’s infrastructure is outdated and deteriorating;
Interest rates are very low, but will likely rise in the near future;
The president-elect comes to office with a background in real-estate development and understands the use of debt.
❝ If this were an equation, the above points would result in an obvious answer: the refinancing of long-term debt and obligations at the lowest possible rate for the longest possible time. I am suggesting that the U.S. issue bonds that mature in 50 or 100 years…
❝ Improving U.S. roads, highways, bridges and tunnels as well replacing or constructing new transport systems is a two-part project: first, commit to making the basic repairs to counter the effects of wear, tear, weather and age. One part of the solution is to fully fund the national Highway Trust Fund by raising the federal gasoline tax. Second, use long-term bonds to upgrade the transportation system, electrical grid and water works that are so crucial to the U.S.’s well-being.
RTFA for the details of Barry Ritholtz’ outline in the issuance and sale of bonds up to 100 year term. We wouldn’t even be the first in North America on the street. Doesn’t lessen the sensible character of his proposal.
Thanks, Barry Ritholtz
Presidents and First Ladies of China and Ecuador, this week
❝ An expected U.S. economic retreat from Latin America under Donald Trump is causing the region’s leaders to look halfway around the world, to China, for help weathering the possible financial headwinds.
They’ll have the perfect opportunity to make their appeal this week when Chinese President Xi Jinping attends a Pacific Rim summit as part of a visit to Ecuador, Peru and Chile…
❝ Over the past decade China has displaced the U.S. as the main trading partner in country after country in Latin America as demand for the region’s soybeans, oil and iron ore fueled the fastest growth in decades. But more recently, as China’s demand for raw materials has been slowing, the region’s economies have taken a hit, dampening the once-torrid love affair with the world’s second-biggest economy.
❝ Margaret Myers, a China expert at the Washington-based Inter-American Dialogue, said that most South American countries have awoken to the pitfalls of dependence on commodity exports and would prefer closer ties to the U.S., which buys the sort of manufacturing goods that generate more jobs.
“But the question is whether the U.S. will reciprocate,” she says. “Nobody in the region is expecting much from Trump in terms of really productive policy. That leaves room for China to play a much more important role.”…
❝ To be sure, a U.S.-China trade war would have ripple effects across Chinese industry that would also depress demand for Latin America’s raw materials.
But for now Chinese businessmen attending the APEC summit see nothing but potential.
As far as I can see – in the view from Lot 4 – China’s foreign policy is more likely to result in mutual growth. Certainly, a predictable difference between investing nations whose “long-term” view means the next election, if not the next quarter – on one hand – and investing nations and parties concerned with a five to ten-year window of change. Usually, progressive in being focused on stable growth.
Actually, I hesitate to call what’s roaring downslope at the American taxpayer an administration. “Government” will have to do for a while.
In the James Room of the Renaissance Baltimore Harborplace Hotel, Erick Sager is demonstrating what happens when you admit that people die. Half-lit by PowerPoint, he explains that a seminal 1998 paper on the ideal level of government debt relies on an infinitely lived agent — it assumes that people are immortal.
This isn’t as crazy it sounds. A lot of macroeconomic predictions still rest on this assumption. It makes the math easier…
When Washington argues about fiscal policy, it’s really fighting over models. By the time the White House produces its budget, its Office of Management and Budget has already modeled what it hopes that budget will do. Majorities in Congress send their budget resolutions to their own preferred think tanks for modeling, too. Then, by statute, bills that come out of most committees must receive a “score” — a modeled result — from the Congressional Budget Office and, for revenue bills, the Joint Committee on Taxation. The CBO and the JCT have a reputation for straight-backed probity, but congressional staffers quietly haggle with both institutions over footnotes.
So Republican economists model against Democratic economists, with some referee economists in the middle. You say your tax cuts can be offset by economic growth. Oh, I ask? Well, are your agents life-cycle or infinitely lived? This is the knife fight in the kitchen, and it’s how the presumed mortality of imaginary people determines the size of your tax bill.
…Structural models of fiscal policy effects have sudden relevance. A single party now controls the White House and both houses of Congress, which means a revenue bill is coming soon, with the first significant tax cuts since 2003. It’s likely to pass, and an appropriations bill will likely follow hard upon. Anyone who cares about taxes, spending, and the debt owed by the U.S. Treasury is going to have to start caring about the details of models.
Dynamic scoring arrived in Congress in 1994 under the “leadership” of smug ruling class loyalists like Newt Gingrich. They invited the sober, conservative economist in his 8th year in charge of the Fed to respond to their version of dynamic modeling. essentially saying, “Look what we can achieve with tax cuts for the wealthy – but, don’t concern yourself about how we pay for everything else we need to run the country…”
Alan Greenspan said he wasn’t convinced – in 1995. Brendan Greeley checked back with the now-retired economist before he rolled out this article – and Greenspan replied [yesterday] “Though he wishes it were otherwise, Dr. Greenspan has not changed his views.”
RTFA. Watch the video interview with Tom Keene and Francine Lacqua – and Brendan Greeley, this morning. Read the article, again. You may as well know what sort of an experiment Republicans, Trumpkins and Tea Party fools are about to try out on American taxpayers.